Recent employment law reforms in Kenya

At a glance

• New statutory deductions have been introduced, requiring employers to contribute to housing, health, and retirement schemes.
• Affordable housing contributions are now mandatory for both formal and informal sector workers, with penalties for late remittance.
• Health insurance reforms have replaced the previous system with a new model based on a percentage of gross income.
• Retirement savings have shifted from flat-rate contributions to a percentage-based, tiered structure to enhance future security.
• Disability inclusion mandates now require employers to reserve a portion of jobs for persons with disabilities and adapt workplaces accordingly.

In recent years there have been several statutory amendments and enactments impacting employment law, particularly around the mandatory statutory deductions that employers are required to deduct and remit from employees' salaries. These amendments have been brought about to implement the government’s agenda to foster a self-sustaining system that encourages employees to save for their future and improves social welfare. Below are the key changes:

Introduction of the Affordable Housing Levy (AHL)

The AHL was introduced through the Affordable Housing Act, 2024, to give effect to Article 43(1)(b) of the Constitution, which guarantees every person the right to accessible and adequate housing, and to reasonable standards of sanitation. AHL was initially introduced via amendments to the Employment Act 2007. However, the High Court declared the amendments unconstitutional due to the absence of a comprehensive legal framework to govern implementation of AHL and the discriminatory exclusion of informal sector workers.

In response, Parliament passed the Affordable Housing Act, 2024, which established a legal framework for implementing the levy and broadened its scope to include informal sector workers. Under the Act, employers are required to deduct and remit 1.5% of an employee’s gross salary and match this contribution.

Employers are required to remit the levy by the 9th day of the following month. Failure to do so attracts a penalty of 3% of the unpaid amount for each month the amount remains outstanding, which is recoverable as a civil debt from the employer.

Transition from the National Health Insurance Fund (NHIF) to the Social Health Insurance Fund (SHIF)

The Social Health Insurance Act 2023, came into effect in 2024 following a Court of Appeal ruling that stayed a previous High Court decision declaring parts of the act unconstitutional. The law repealed the National Health Insurance Fund Act1998 and replaced the NHIF”) with the SHIF, administered by the newly created Social Health Authority (SHA).

The SHIF aims to expand healthcare access and align Kenya’s health insurance model with international standards for Universal Health Coverage. Employers are now required to deduct 2.75% of an employee’s gross monthly income and remit it to SHA. Unlike the previous NHIF contribution system, which used salary brackets and capped the maximum contribution to KES1,700 (approx. USD13), the SHIF contributions are uncapped. Implementation of the National Social Security Fund (NSSF) Act 2013

The NSSF Act, 2013, was enacted to replace the outdated NSSF Act (Chapter 258 of the Laws of Kenya), which had a flat-rate contribution model that was deemed inadequate for ensuring sufficient retirement savings. While the NSSF Act was scheduled to take effect in January 2014, its implementation was delayed due to legal challenges that culminated in certain sections being declared unconstitutional by the Employment and Labour Relations Court. However, following a decision by the Court of Appeal on 3 February 2023 that overturned the earlier judgment, the NSSF Act is now in force.

The NSSF Act introduces enhanced contribution rates, moving from a flat rate of KES200 per month (approx. USD2) to 12% of an employee’s pensionable earnings: 6% from the employee and 6% from the employer. It also establishes a two-tiered contribution structure:

• Tier I: Contributions based on earnings up to the Lower Earnings Limit (LEL), remitted to the NSSF.
• Tier II: Contributions on earnings above the LEL, which may be remitted either to the NSSF or to a private pension scheme registered with the Retirement Benefits Authority. 

Employment quotas for Persons with Disabilities (PwDs)

The Persons with Disabilities Act 2025 (Act), which was assented to in May 2025 and comes into force on 27 May 2025, introduces a significant shift in employment practices. The Act requires both public and private sector employers to reserve at least 5% of direct employment opportunities for PwDs, where the employer has at least twenty employees. This provision aims to promote inclusivity and enhance equal employment opportunities for people with disabilities.

Employers are also required to formulate policies and programmes to promote basic human rights, improve working conditions, and enhance employment opportunities for PwDs and to modify work premises to accommodate the employment of PwDs. The Act also introduces tax incentives for private employers who hire persons with disabilities or invest in modifying workplaces to support their inclusion.

These legislative changes represent a shift towards improved social welfare, enhanced retirement savings, and universal health and housing access.